What Triggers Inflation in Emerging Market Economies?

25 Pages Posted: 20 Apr 2016

See all articles by Ilker Domac

Ilker Domac

World Bank - Poverty Reduction and Economic Management Unit (EASPR)

Eray Yucel

Bilkent University - Department of Economics

Date Written: August 13, 2004

Abstract

Emerging market economies (EMEs) have experienced a noticeable decline in inflation since the mid-1990s. Whether this stable price environment in EMEs is likely to endure and what kind of policies need to be followed to ensure price stability, however, still continue to be questions of considerable policy relevance. Domac and Yucel investigate the factors associated with the start of 24 inflation episodes in 15 EMEs between 1980 and 2001. They use pooled probit analysis to estimate the contribution of the key factors to inflation starts. Their empirical results suggest that increases in the output gap, agricultural shocks, and expansionary fiscal policy raise the probability of inflation starts in EMEs. Their findings also indicate that a more democratic environment and an increase in capital flows relative to GDP reduce the probability of inflation starts.

This paper - a product of the Poverty Reduction and Economic Management Sector Unit, Europe and Central Asia Region - is part of a larger effort in the region to enhance knowledge on the inflationary process and its policy implications.

Keywords: Inflation starts, emerging market economies, price stability, probit analysis

JEL Classification: E31, E58

Suggested Citation

Domac, Ilker and Yucel, Eray, What Triggers Inflation in Emerging Market Economies? (August 13, 2004). Available at SSRN: https://ssrn.com/abstract=625253

Ilker Domac (Contact Author)

World Bank - Poverty Reduction and Economic Management Unit (EASPR) ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Eray Yucel

Bilkent University - Department of Economics ( email )

06533 Ankara
Turkey

HOME PAGE: http://https://sites.google.com/view/erayyucel/

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